Cameron Scott Law

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US tariffs and Canadian surtaxes: what applies to your business

Current to October 15, 2026.

Canada and the United States have been in a trade dispute since early 2025, fought through charges applied to goods crossing the border. The measures imposed in August and September are now fully in force, and two of them do not work the way any of the earlier ones did.

What follows explains how these measures work and what a Canadian business can recover or change. It assumes no prior knowledge of customs law.

Tariffs, duties and surtaxes

The two countries charge goods at the border under different statutes and call the result different things. Keeping them apart matters, because remission and the relief programs each attach to one charge and not the others.

A tariff is a tax on goods entering a country, paid to the government of the country they are entering. The United States imposes its measures as tariffs, expressed as an additional duty at a stated percentage of the value of the goods.

Canada charges ordinary customs duties under the Customs Tariff, and most goods arriving from the United States have long carried none, because the free trade agreement removes them.

Canada’s retaliatory measures are separate again: surtaxes, imposed by order in council under the Customs Tariff and collected by the Canada Border Services Agency in addition to any duty otherwise payable. A surtax is a Canadian instrument. Nothing the United States has imposed is a surtax, and Canada’s countermeasures are not tariffs, whatever the headlines call them.

Who pays

The obligation falls on the importer of record: the party named on the customs entry as responsible for the shipment. It is a role someone agreed to take on, not a status that follows from being the buyer or the seller.

Buy from a US supplier with your business named on the Canadian entry and the surtax is yours. Sell to a US customer on terms where you deliver the goods cleared through customs and the US duty is yours. The arrangement is usually settled once by a freight forwarder or customs broker and never revisited, so it is worth confirming rather than assuming.

CUSMA — the Canada-United States-Mexico Agreement, called the USMCA in the United States — is the free trade agreement between the three countries. Where a good meets its rules of origin, the importer claims preferential treatment by a certification of origin and the ordinary duty falls away. That still works. Whether it reaches the special measures below is the question this autumn has turned on.

How the current measures came about

They were built in layers, each under a different power, and the sequence explains why they behave so differently from one another.

The dispute opened in early 2025 with US tariffs imposed under emergency economic powers and Canadian surtaxes in reply. Through that year the United States added tariffs aimed at whole industries on national-security grounds: vehicles and parts, then steel and aluminum at a higher rate, later extended to copper and to goods containing any of the three metals. Canada matched with surtaxes on US steel, aluminum and vehicles, which have run ever since. In February 2026 the US Supreme Court held that the emergency powers behind the original tariffs never authorized them. The industry tariffs were untouched, resting on a different statute, and the general layer was rebuilt twice during 2026 on other authorities. It now stands at ten per cent, and goods entering duty-free under CUSMA are exempt from it.

The present escalation began on August 22, 2026, when the United States applied an additional fifty per cent to a defined list of Canadian goods under a provision of the Tariff Act of 1930 that had never been used before. The significant point is the reach rather than the rate: unlike every measure before it, a CUSMA certification does not exempt goods on that list. The carve-outs are narrow — broadly energy, potash, fish, critical minerals and certain civil aircraft articles. Goods already carrying the industry tariffs were carved out as well, but since September 15 only on the original list; goods added after that pay the fifty per cent on top.

Canada answered on September 8, 2026 with surtaxes of fifteen, twenty-five and fifty per cent across three schedules of US goods, concentrated in steel and aluminum, dairy, appliances, agricultural equipment, pulp and paper, furniture, apparel and electronics, with rates set to match the corresponding US rates. The existing surtax on US steel and aluminum doubled to fifty per cent the same day. That evening the United States signed proclamations that did two things. From September 15 they changed the fifty per cent list itself: further dairy products including several cheeses, raw hides, motorboats, paper, aluminum and iron products and furniture went on, while salt, toilet tissue, refined lead and spirits in containers over four litres came off. And from September 29 they replaced the duty on some Canadian goods with an outright prohibition.

One older system sits outside all of this. Anti-dumping and countervailing duties, imposed to offset prices said to be unfairly low or foreign subsidies, are decided case by case through trade remedy proceedings. Softwood lumber is the largest example, and nothing above affects it.

Restrictions that are not tariffs

Not every barrier is a charge, and the ones that are not tend to be absolute. A tariff makes a sale worse; a prohibition ends it.

Since September 29, 2026 a defined list of Canadian goods may not be imported into the United States at all. Three proclamations carry the lists: one covering most alcoholic beverages, one covering a range of dairy products together with whey and molasses, and one covering motor vehicles, which reaches larger motorcycles and mopeds. The prohibition replaces the fifty per cent duty rather than adding to it, and a CUSMA claim does not exempt those goods.

The bar is drawn widely enough to close the usual alternatives. Covered goods cannot be entered for consumption, moved in bond, placed in a bonded warehouse or admitted to a foreign trade zone, and such entries are rejected rather than held. Goods imported before September 29, including those already sitting in a zone or warehouse on that date, may still be entered for consumption, but remain subject to the fifty per cent duty. How that applies to a particular shipment is a question for US customs counsel or a licensed broker.

Procurement has narrowed on both sides, and no customs ruling or remission application touches it. Canadian-origin products are being removed from United States federal procurement, and provincial procurement has narrowed against US suppliers. Ontario has also kept US alcohol out of the LCBO since March 2025, which, because the LCBO is the importer for the province, operates as an import restriction rather than a retail decision. Quebec and Manitoba have taken similar positions; Alberta and Saskatchewan reversed theirs.

Whether your goods are caught

For goods you import from the United States, whether the Canadian surtax applies turns on two technical questions.

The first is classification. Every product carries a code under an internationally standardized system, and the measures apply to lists of those codes. The correct code is a legal question, decided by what the product is and how the classification rules work rather than by what your industry calls it or what appears on the purchase order. Products that look alike are often classified differently.

The second is origin, and here Canada uses a test that catches people out. The surtax applies to goods that can be marked as goods of the United States under the CUSMA country-of-origin marking regulations. That is a different test from the CUSMA rules of origin, which decide whether a good qualifies for duty-free treatment. The same shipment can pass one and fail the other, so a supplier’s statement about where goods come from is not a determination you can rely on.

Where either question is genuinely arguable, the CBSA will issue an advance ruling: a binding decision, given before you import, on how a product will be classified or where it originates. It is the only way to know the answer rather than estimate it.

Getting it wrong cuts both ways. A declaration that proves incorrect must be corrected within a set period of your having reason to believe it is wrong, and the CBSA can reassess and collect surtax never declared, with interest and penalties. The equivalent questions on the US side are decided under United States law by United States authorities; a Canadian determination does not answer them.

Relief from the surtax

Several routes exist, none of them automatic, and the broadest one is the one most often missed.

The United States Surtax Remission Order (2025) relieves surtax on three groups of goods. The first is goods imported for public health, public safety or national security use by listed entities, including emergency services, law enforcement and National Defence. The second is goods used in medically necessary health care at hospitals, clinics, laboratories and long-term care facilities. The third is goods used in Canada to manufacture or process any good, to produce agricultural products, or to package food or beverages.

That third category is worth reading twice. It is not industry-specific, and both machinery and direct inputs can qualify. If you import a US-origin component or material and it goes into something you make, process or package here, check this before treating the surtax as a sunk cost. The limits are narrower than the category: goods used only for storage or transport, or for general upkeep of the facility, generally do not qualify. Further schedules cover steel and aluminum used in motor vehicle, aircraft and spacecraft manufacturing.

Remission is claimed by the importer, not granted on application. The mechanism is a special authority code entered on the customs accounting document, with the surtax still declared, and records kept showing both eligibility and actual use, because the CBSA can ask for them. Where goods have already been accounted for, the route is a correction or adjustment through the Commercial Client Portal.

A claim must be made within two years of importation. A correction has a tighter window tied to the payment due date for the entry, after which the same claim is processed as a refund instead. Import deadlines vary by category: health care and public health goods must be imported before July 1, 2027, the steel and aluminum schedules have their own windows, and several categories carry no time limit at all.

Where an input genuinely cannot be sourced outside the United States and no existing remission covers it, a business can apply to the Department of Finance for individual remission. Applications are assessed one by one and approval requires the Minister’s sign-off and an order of the federal Cabinet, so it is worth beginning before the cost becomes urgent.

Where imported goods are later exported, unchanged or after processing, the Duties Relief Program suspends the amount at import and the Duty Drawback Program refunds it afterwards. Goods imported under a permit for the Import for Re-Export Program sit outside the September surtax order altogether. Each requires registration and records that will stand up on audit.

Two narrower rules complete the picture. Goods already in transit to Canada when the September order came into force were excluded. And where a shipment would be caught both by that order and by the earlier order covering goods containing US steel, only the September one applies.

One procedural trap is worth naming, because the penalty for it is real. Refund claims submitted through the CBSA’s electronic casual refund system must be batched separately from claims without surtax and accompanied by the prescribed surtax template; the agency restated the requirement on October 1, 2026. A non-compliant batch draws a monetary penalty and places the filer on upfront review, which slows every claim after it.

Cash flow, security and government support

Surtax is payable when goods are imported, before any remission, relief or drawback is recovered. That gap is a working capital problem rather than a legal one, and it is usually the first thing a business notices.

A second effect is less obvious. To have goods released before paying, an importer posts financial security with the CBSA, sized on that importer’s own recent liability for duties and surtax. A sharp increase can exceed the security in place, and an importer whose security falls short must pay on each shipment as it arrives.

Government support exists, is not automatic, and was substantially widened alongside the September measures. The federal package runs to roughly seven and a half billion dollars, and the programs do different jobs. The Regional Tariff Response Initiative runs through the regional development agencies, reaching southern Ontario businesses via FedDev Ontario; its cap on non-repayable funding was tripled to three million dollars per business, with a stream added for demonstrated liquidity needs. For immediate cash-flow pressure the Pivot to Grow stream sits with the Business Development Bank of Canada, and the minimum revenue requirement for the BDC tariff programs was lowered to one million dollars. On the employment side, Rapid Response Supports for Workers and Employers combines extended employment insurance flexibilities, training investment and a new Worker Retention and Retraining Program for employers trying to keep staff through the disruption.

In Ontario, the Protect Ontario Financing Program was broadened in late August. On September 10 the province extended eligibility under that program and the Ontario Together Trade Fund to the sectors caught by the newest US measures and the prohibitions that followed. Each program has its own criteria and requires evidence of the impact rather than an assertion of it.

Longer-term decisions

Origin is a conclusion drawn from facts, and facts can be changed. Where an input is bought, where the last substantial processing happens and what is added in Canada can each alter whether a good is caught. This is legitimate planning, but only where the change is real: routing goods through a third country does not change their origin, and a declaration that misstates it is a penalty rather than a saving. Establish the position by advance ruling before relying on it.

Structural responses carry longer tails. A subsidiary, a warehouse or staff across the border changes your tax position in ways that outlast any of these measures. Whether the arrangement creates a taxable presence, what must be withheld on payments out, and what changes when an employee works in another country are separate questions. Selling to your own affiliate adds another: charges are calculated on the price set between the two companies, and adjusting it must still satisfy transfer pricing rules and customs valuation.

Contracts decide less than people hope. A fixed price does not adjust because costs rose, and whether a clause referring to taxes covers a customs duty or a surtax depends on its wording, since the two are different charges under different statutes. Force majeure clauses generally address performance becoming impossible rather than more expensive, so they rarely assist against a charge. A prohibition is different in kind, and that difference now has practical bite: where goods cannot lawfully be imported at all, impossibility and illegality become relevant, and a clause referring to embargoes or government prohibition may apply.

There is also a record-keeping point with a long tail. The fifty per cent measure rests on a provision of United States law never previously used, its validity has been publicly questioned, and earlier US tariff layers resting on other statutes were struck down. Whether any challenge succeeds, and what a refund would require, are questions of United States law for United States counsel. The discipline on this side is simple: keep complete records of every shipment on which that duty was paid, and of when each entry was finalised, because any refund ever available will be reconstructed from them.

Cost pressure reaches staffing quickly, and Ontario’s Employment Standards Act applies regardless of the cause. Temporary layoffs are permitted only within limits, a layoff the employment contract does not provide for can amount to constructive dismissal at common law, and cutting hours or pay unilaterally carries the same risk. Terminating a number of employees within a short period triggers additional notice. The federal Work-Sharing program is built for reduced hours and is easier to arrange in advance than to retrofit.

Finally, the planning horizon. CUSMA was not renewed at its first joint review on July 1, 2026. It remains fully in force with a scheduled end in July 2036, and now proceeds by annual review. The structure and timing of those reviews have not been settled, and further negotiation is expected rather than concluded. Arrangements made now should be capable of absorbing further change. See business, tax and employment.

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